NKO – Niko Provides Clarity on Credit Facility ‘Lifeline’ and Ed Sampson Sets Departure Date

POSTED ON November 21, 2013 BY Travis McPherson
CATEGORY Asia, India, Oil and Gas, Regions,

Ed Sampson Is the single largest individual shareholder with over 3 million shares

Battered by operational challenges and financial troubles, Niko Resources' (NKO:TSX) Chairman, CEO and President, Ed Sampson, announced he will resign by year-end and that Jake Brace will take over. Ed Sampson founded the company 18 years ago and developed its impressive asset base in Bangladesh, Indonesia, and Trinidad and Tobago. Mr. Brace was hired as an advisor a few months ago in order to help the company solve its short-term liquidity needs (he did the same thing previously as United Airlines). NKO also announced an update on their recently announced $340 million credit facility which comes with a steep coupon/royalty structure. The credit facility would provide funds to refinance some of its existing debt obligations, including the company's current credit facility and secured loan, to finance the company's investment in the D6 block, and otherwise for general corporate and working capital purposes.

Mr. Sampson indicated: "With production about to move up in India, a gas price in India about to double and the recent drilling of what could prove to be the most significant discovery in D6 to date, I feel comfortable this should be my time. I will leave the company with a very strong and committed management team led by Jake Brace, Bill Hornaday and Glen Valk. As one of the largest individual shareholders of the company, I remain extremely excited about the D6 block and the prospects of Niko in the coming years."

The new facility matures in September 2017, giving the company enough time to participate in their portion of the D6 block and, with some drilling success, start generating positive cash flows. This is, clearly, a desperate move by management and unfortunately one that had to be done. The credit facility comes with a 15% annual coupon rate and a 6% royalty (capped for 7 years).

Although the rate is steep and the royalty will impact future cash flows, this facility enables the company to work through its short-term liquidity troubles and to participate on the D6 block. The facility is contingent upon the company refinancing or settling the $42 million in unsecured non-convertible note obligations from sources other than the $340 million credit facility (most likely equity). This newest facility is available only for work on the D6 block.

Niko has also come to an agreement with Diamond Offshore for their financial exposure on the Ocean Monarch rig which has been on stand-by for the past few months. NKO's stand-by fee on the Ocean Monarch rig were said to be $385,000 per day or $11 million per month. NKO and Diamond Offshore have agreed to cap this amount to $80 million which will be partially paid by the credit facility and the remaining (no details disclosed) to be paid in the future, without interest charges.

Niko shares are down over 85% this year as the company's balance sheet became increasingly levered and the options for refinancing seemed to dry up. The company was once a market darling trading at over $110 per share and with high hopes for big potential offshore blocks. Now the company is left with a potentially restricted operating portfolio and a tight budget.

The company expects to tie in their MA 8 well within the next few weeks. This will add to their production capacity.

The company has engaged Citibank to advise them on the sale of non-core assets which could include, amoung others, their NCMA 2 and 3 blocks (56% and 85% interest, respectively) off the coast of Trinidad and Block 5c which they hold a 25% working interest in. The company also recently announced that the two of their previously announced asset sales which would total over $150 million in much needed cash were unlikely to close.

The D6 block is an attractive asset, so we will wait to see if they can finalized this credit facility and what their options will be for the remaining funding needs. If they can't close this funding facility, the company is likely to enter bankruptcy given the current debt structure.

Here's the 5-Year chart:

Read: Niko Provides Corporate Update

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

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